Measures & Determinants of Success: The Role of Product Life Cycle in Commodity Futures

Abstract

Our study introduces a new approach to evaluate the success of commodity futures through the lens of the product life cycle (PLC). Our primary contribution lies in constructing a PLC for commodity futures and rigorously examining how various success measures and their determinants perform across the introduction, growth, and maturity stages. This is the first study to apply the PLC concept to commodity futures, offering a novel perspective on the dynamics of success measures throughout different life cycle stages. We employ a comprehensive dataset comprising 107 commodity futures, including agricultural, bullion, base metals and energy, from six exchanges across China, India, and the USA. It also studies the role of financialization as a determinant of commodity futures success. Through logistic fixed effects regression, we observed that both volume and open interest are significantly lower during the introduction stage and higher in the maturity stage. Additionally, fixed effects regression with clustered standard errors underscores financialization as a crucial determinant of success, evidenced by a marked increase in the model's R-squared upon incorporating financialization into the already established model of futures’ market determinants. Lastly, we compare the determinants of success in developed and emerging economies. To ensure the robustness of our results, we utilize both weekly and monthly data, reinforcing the validity of the results and offering a comprehensive view of the dynamics influencing commodity futures success.